Goldman Sachs, a global brokerage firm, projects that the Indian rupee would appreciate positively in 2024 and might reach 81 versus the US dollar by the end of the year.
According to Santanu Sengupta, chief economist at Goldman Sachs, “the positive outlook is fuelled by expectations of substantial foreign capital inflows, particularly as the Reserve Bank of India (RBI) continues to accumulate inflows and bolster forex reserves at every available opportunity.”
Equity portfolio flows into India will be “robust” as the Federal Reserve starts its interest rate easing cycle in 2024, while debt inflows will be strong following India’s inclusion in the JPMorgan’s global bond indexes, Goldman Sachs added.
Moreover, Asia’s third-largest economy will continue to benefit from regional supply chain diversification, which will boost foreign direct investments, it said.
Apogee of Goldman’s note
The note emphasizes that when the Federal Reserve starts its cycle of interest rate relaxation in 2024, significant equities portfolio flows are anticipated into India. Strong debt inflows are also expected after JPMorgan added India to its global bond indexes.
The brokerage adds to the upbeat forecast for Asia’s third-largest economy the possibility of sustained gain s from regional supply chain diversity, which encourage foreign direct investments.
Interestingly, Goldman Sachs is one of the analysts who is more optimistic about the rupee than most, predicting that it would remain between 82 and 83 per dollar for the next three to six months.
India has favorable external balances due to a low current account deficit, strong capital flows from the public market, significant foreign exchange reserves, and low levels of external debt.
Goldman’s Estimates
On Tuesday, Goldman Sachs reduced its projections for India’s current account deficit in 2023 and 2024 from 1.3% and 1.9% of GDP to 1% and 1.3% of GDP, respectively.
It further stated that India’s external balances continue to be favorable due to a low current account deficit, robust capital inflows from the public market, sufficient foreign exchange reserves, and low external debt.
As of December 22, the nation’s foreign exchange reserves reached a 21-month high of $620.44 billion.
To stop the rupee’s exchange rate from experiencing excessive volatility, the RBI intervenes in the currency markets.
The nation’s foreign exchange reserves as of December 22 were $620.44 billion, a 21-month high. The purpose of the RBI’s aggressive involvement in the currency markets is to stop the rupee’s exchange rate from fluctuating too much.
Indian Rupee in a tight range?
Earlier to Golman’s estimates on the Indian Rupee FX experts in a Reuter’s poll predict that the Indian rupee will move in a narrow range versus the US dollar in the coming year. They also predict that the Reserve Bank of India (RBI) would continue to significantly intervene in the market for at least six months.
The dollar has recently lost strength after strengthening for the most of this year as investors predicted the US Federal Reserve will start lowering interest rates in 2019. This will assist the majority of emerging market currencies recover some of their lost ground.
Twelve out of 37 analysts, or nearly one-third, predicted that by the end of December 2023, the currency would have fallen to a new low.
The rupee is now expected to appreciate by only roughly 0.6% in a year, reaching 82.80.
The vigorous, two-sided FX intervention by the RBI has significantly decreased rupee volatility. According to QuantEco economist Vivek Kumar, “it is likely that such a scale of intervention will continue over fiscal year 2025.”
Of the 23 strategists, 14 predicted that the RBI’s interventions would not significantly lessen for at least six months, and 11 did not anticipate that they would ease anytime soon. Time will anyway show where the Indian Rupee will park itself in.
